Output dips at UK manufacturers but growth is “solid” thanks to sterling fall
The UK's manufacturing sector continued to grow at a "solid", if slightly slower, pace in October, new figures have shown.
Markit's purchasing managers' index (PMI) for the sector fell to 54.3, from 55.5 in September – although it was well above its long-term average of 51.5. Any figure above 50 denotes growth.
Unsurprisingly, the growth was largely thanks to the fall in the pound, which "aided" efforts to increase the number of orders coming from the US, the EU and China.
Rob Dobson, IHS Markit's senior economist, said:
“The UK manufacturing sector remained on a firm footing in October and should return to growth in the fourth quarter. Despite slowing from September’s highs, growth of output and new orders continued to defy expectations, rising at marked rates and supporting the fastest job creation in a year."
Read more: Exports surge on weak sterling
But with input prices rising at their third fastest rate since the survey started in 1992, he also highlighted the negative side of the falling pound.
"The downside of the weaker currency is becoming increasingly evident, with increased import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history. Around 90 per cent of companies offering a reason for increased costs made some reference to the sterling exchange rate."
“While the impact the pound’s fall is having on exports can’t be overstated, the industry could find margins being eroded faster than first thought if increasing costs cannot be passed on," added Shannon Murphy, assistant head of underwriting at Euler Hermes.
The bad news is that it hasn't stopped falling. Research published today suggested the pound could fall as low as $1.15 when the government triggers Article 50, thereby formally beginning the Brexit process, in the spring…. ouch.